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How the Legislature’s ‘Big Five’ Crafted A Deal To Rescue Honolulu Rail

The House and Senate were deadlocked. Key leaders had lost powerful positions. And the 20-mile rail line planned to run from East Kapolei to Ala Moana was expected to run out of money in about a year.

When lawmakers shut down the 2017 regular legislative session back in May, the efforts to craft a financial bailout for the struggling rail project were in ashes.

But fast forward four months: Gov. David Ige is expected to sign a $2.4 billion rail financing package that passed during a five-day special session last week.

House Transportation Committee Chairman Henry Aquino, left, newly elected House Speaker Scott Saiki and House Budget Committee Chairwoman Sylvia Luke say the work to rescue the rail project forged strong bonds among the leaders and their Senate colleagues.

Stewart Yerton/Civil Beat

That scenario once seemed unlikely.

“This wasn’t planned,” said Rep. Sylvia Luke, who chairs the powerful House Finance Committee. “We weren’t going to blow things up in May then come back kumbaya in August.”

But here we are. Kumbaya.

Interviews with the legislative leaders most responsible for the funding package – Senate President Ron Kouchi, House Speaker Scott Saiki, Luke, Senate Ways and Means Committee chair Donovan Dela Cruz and House Transportation Committee chair Henry Aquino – suggest the bill’s success was the result of several factors, including an agreement to use certain numbers in their analysis, a concerted effort to be open with fellow legislators and a timeline that would require the effort to stay on track.

One of the unsung players was the state’s Budget and Finance director, Wes Machida, who lawmakers say worked tirelessly to provide key data.

A perhaps more unlikely key to getting the bill passed was Mayor Kirk Caldwell, who served as a foil that would unite the legislative leaders as he tried to derail their effort.

Indeed, on the House floor Friday, Luke looked up to the gallery seats where the mayor was sitting and thanked him, joking that there was nobody else who could have so effectively brought the lawmakers together.

“That is true,” Saiki said.

He noted that even U.S. Sen. Brian Schatz and U.S. Rep. Colleen Hanabusa had joined the fight against Caldwell.

The new bill is projected to raise approximately $2.4 billion over 13 years, roughly $1.046 billion from a 0.5 percent general excise tax charged on Oahu taxpayers and $1.3 billion from hotel guests statewide via a 1 percentage point increase in the state’s hotel room tax. The bill extends by three years the 0.5 percent general excise tax and increases the hotel room tax to 10.25 percent from 9.25 percent for 13 years.

It’s billed a compromise over competing bailout plans on the table in the House and Senate when the regular legislative session ended May 4.

The House bill, introduced by Aquino and supported by Luke, extended the general excise tax rail surcharge by one year, from 2027 to 2028, and increased the hotel tax from 9.25 percent to 10.25 percent for 10 years, until 2028.

The Senate bill was entirely different. Sen. Jill Tokuda, then chair of the Ways and Means Committee, known as WAM, had drafted a bill that increased the hotel tax and kept the rail excise tax sunset. But with the tourism industry and construction unions heavily lobbying lawmakers, the Senate voted 16-9 to revert back to a version of the bill that relied only on the general excise tax, which Caldwell backed.

Big Island Sen. Kai Kahele was one of Tokuda’s most vocal critics, calling her bill “pilau,” Hawaiian for “rotten,” and eventually leading a push to remove her as WAM chair.

Looking back, Tokuda says she’s convinced she was trying to do the right thing. It was wrong, she said, to keep saddling Oahu residents with a sweeping general excise tax, which tax experts universally agree disproportionately burdens lower- and middle-income people.

Sen. Jill Tokuda in May wiped tears away after giving a short speech about being removed as the Ways and Means chair. Looking back, she says she made the right decision.

Cory Lum/Civil Beat

“I have no regrets,” Tokuda said. “For me, it was making sure it was not an open-ended blank check on the backs of the people.”

If the rail project was going to move forward, it would be up to this team – Kouchi, Saiki, Dela Cruz, Luke and Aquino – to make it happen.

Call them the rail plan’s Big Five.

Breaking The Ice

With the Legislature in recess in May, Kouchi said he and Saiki could sit down and start working together. It’s easier to make progress, Kouchi said, “when you take the noise out of the room.”

From the beginning, one thing was obvious to Kouchi: “I think it was clear on May 4 that any deal was going to include the TAT,” he said, using the abbreviation for the hotel room tax, formally the Transient Accommodation Tax.

Perhaps less clear was how the new legislative leaders would get along with each other.

There was new House Speaker Saiki, a 53-year-old Honolulu attorney who had served in the Legislature since 1994, and Dela Cruz, a 44-year-old former Honolulu City Council chairman who was elected to the Senate in 2011. Like Dela Cruz, Kouchi had served as a council chair on Kauai; he had succeeded Sen. Donna Mercado Kim as Senate president in 2015.

On the House side, there was Aquino, a lifelong Waipahu resident who had served in the House since 2008. And there was Luke, a Honolulu trial lawyer whose wry sense of humor was on display when she thanked Caldwell from the House floor.

Saiki says he viewed his speaker’s role as legislative referee and crisis support line counselor.

Dela Cruz, meanwhile, had a reputation as a skilled dealmaker, a description he doesn’t object to, and something of an operator, thanks to initiatives like his short-lived Public Land Development Corp. Established to develop state lands through public-private partnerships with developers, the PLDC drew ire from conservationists because it was meant to exempt public-private ventures from many of the land-use restrictions developers normally must follow.

“I guess people have said I’m known for back room deals,” Dela Cruz said. “But all I’m trying to do is build consensus and achieve a win-win outcome.”

Although Saiki said both Dela Cruz and Luke can be “intense,” they were balanced out by the low-key Aquino and Kouchi, Saiki said.

“We weren’t going to blow things up in May, then come back kumbaya in August.” — Rep. Sylvia Luke

Heading into negotiations in June, Luke says she was still angry from the fallout during the previous session, which made for some tense first meetings. Although she calls herself a rail skeptic, Luke had come out in support of a bailout bill — only to have the Senate kill the deal.

“It wasn’t so much feeling each other out,” Luke said of the first meetings to revive the bailout plan. “We were still getting over our anger stages.”

“It took several meetings for her to work that out,” Saiki said.

A Super Short Session

By early July, relations had thawed enough that Kouchi and Saiki felt they could announce a special session. On July 7, they sent a memo to lawmakers saying to keep their calendars clear for a Aug. 28-Sept. 1 session.

“Negotiations between the Senate and House have occurred for some time and are ongoing,” the memo said. “We are optimistic that the lead committee chairs have held, and will continue to hold, productive discussions.”

“The ice had broken,” Saiki says, looking back. “But it wasn’t a slam dunk that we would reach a compromise.”

A five-day session would be extraordinarily short. Under the Hawaii Constitution, bills must pass three separate votes, or “readings,” in each house on separate days. In addition, the Constitution says the final form of a bill must be presented to each house at least 48 hours before their third vote.

Testifying during the special session, rail critic Choon James tosses a handful of dollar bills into the air at the Capitol auditorium to make a point about escalating costs.

Cory Lum/Civil Beat

To stick to a five-day schedule, there would be no chance for amendments. That meant working out issues ahead of time.

Asked about the short session, Saiki said that in light of the work done by lawmakers before the session, and the marathon hearings held by committees during the session, the bill received ample attention and public debate.

“Bills that go through the regular session don’t receive that amount of time and attention,” he said.

Agreeing On The Numbers

The leaders agreed on one thing early on: to use numbers from Machida, the Hawaii Department of Budget and Finance director, as the basis for their analyses. Dela Cruz, Luke and Saiki concurred in interviews that the agreement was key.

Saiki said Machida was extraordinarily helpful, responding to questions with a steady stream of Excel spreadsheets.

“It was every time we called him,” Saiki said. “He would give us an immediate analysis.”

And Machida was credible.

“No one ever questioned his analysis,” Saiki said.

Another key was a PowerPoint presentation that Dela Cruz and his staff put together. The presentation laid out several tax options for funding the rail. The presentation also discussed ways to give the state more oversight.

The key page from a presentation created by Senate Ways and Means Committee Chairman Donovan Dela Cruz using Budget and Finance data shows projections used to craft the bailout bill.

Hawaii Legislature

One of the realities facing legislative leaders was that the rail project was enormously unpopular, thanks to construction delays and an escalating budget, which had doubled to as much as $10 billion, including interest payments, according to some projections.

A Civil Beat poll published in June found that only 31 percent of Oahu voters had a positive view of Caldwell and 51 percent had a negative view – results that pollsters linked to Caldwell’s inextricable ties to the rail project.

Caldwell had worked on rail as managing director for the project’s mastermind, former Honolulu Mayor Mufi Hannemann, and had picked up the mantle as mayor.

“It wasn’t a slam dunk that we would reach a compromise.” — House Speaker Scott Saiki

To address public concerns, Dela Cruz’s presentation discussed no longer simply handing money over to the city with no oversight of the project’s manager, the Honolulu Authority for Rapid Transportation. The presentation included various options, including a drawdown process in which the city would have to submit invoices to the state for approval before receiving money.

Uniting Against A Common Foe

Negotiations gained greater urgency in late July.

On July 24, HART forwarded Kouchi and Saiki a letter from the Federal Transit Authority that included a thinly veiled threat that the FTA would withhold some $800 million of $1.55 billion pledged to the project and try to claw back the rest of the money, which had already been given to HART.

While the public and media were watching from afar, trying to get a sense of what would happen at the end of August, the leaders were trying to keep other lawmakers in the loop.

Dela Cruz says he had two briefings in August, known as caucuses, to let other senators know what was being considered before the special session. House leadership had one caucus, and Luke had one, a total of two on the House side, Saiki said.

By the middle of August, the public got its first official glimpse of what the rail bailout might look like.

On Aug. 14, lawmakers held an information briefing to discuss the rail funding session and possible funding plans. While such briefings normally just provide information, the leaders also took public comment. The result was a marathon meeting with testimony from public officials like Caldwell, hotel executives and rail critics, among others.

“That was a little different,” Aquino said of the decision to allow testimony. “But it served its purpose.”

City Council Chair Ron Menor, left, shakes hands with Mayor Kirk Caldwell after final passage of the rail bailout during the special session. The measure passed despite Caldwell’s objections.

Cory Lum/Civil Beat

If there had been any question before, one thing was clear after the meeting: the bailout would likely include some hotel tax money. The appeal of the TAT was not only that it was not viewed as regressive like the excise tax; it also would provide money more quickly, which would save money in interest, as much as $208 million, according to one projection.

By the last week in August, Civil Beat and Honolulu Star-Advertiser both had stories outlining the bill’s main elements. It was apparent the bill would raise about $2.4 billion, which was based on a total cost of $8.165 billion, which HART had cited as the total cost in a report to the FTA in April.

On Aug. 23, just days before the special session was to start, Caldwell issued a press release saying he needed more money.

“Full funding is $3 billion,” he said. “Any plan short of that is not a viable solution.”

Lawmakers were not impressed. During the previous session, it was at times difficult to get clear information from Caldwell, Luke said. And it was hard at times to fact-check his figures. This time the lawmakers were prepared, she said.

“We know the numbers just as well as he does,” Luke said, explaining why they didn’t yield to Caldwell’s requests for more money. “He can’t fool us with the numbers.”

Over the course of the five-day session, Caldwell repeatedly asked for more. It only strengthened the resolve of the legislative leaders, Dela Cruz said.

“He had no appreciation for all of our effort,” Dela Cruz said. “It was a fragile deal that we had consensus on. And when he came back saying it wasn’t enough, that’s when we solidified.”

Hopeful For The Future

In some ways, the five-day session was a formality.

Rep. Gene Ward, an Oahu Republican who opposed the rail bill, called the session “kabuki theater,” suggesting it was simply a choreographed performance. In truth, lawmakers had a chance to kill the bill – a number in both the House and Senate voted against it – and the session allowed significant testimony.

If hoteliers who testified are right, the bill will damage the industry, possibly causing a drop in visitors and with it a drop in hotel taxes paid that will undermine the revenues generated. The city also may be vindicated if, as Caldwell repeatedly said, the FTA rejects the bailout plan or the taxes do not produce as much revenue as projected.

Saiki said that for rail to survive, the city and HART need to do two things: control costs and rebuild public confidence.

As for the Legislature, Saiki said he believes leadership is ready to tackle other big issues during the regular session that starts in January. Kouchi, Dela Cruz, Luke and Aquino agreed.

“I feel like after working on this, we can work on anything,” Saiki said.

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